Buy most things in Canada and you’ll have to do some mental math to calculate sales taxes to know how much you’ll actually spend before you reach the checkout register.
The legal basis for separating sales taxes from advertised prices dates back to the 19th century. But a common modern-day argument in support of the practice is that it delivers a powerful, recurrent reminder to consumers, a.k.a. taxpayers, of the cost of government.
It is curious, then, that when it comes to the biggest purchase in most people’s life, this country does such a poor job of highlighting the impact of the variety of government fees and charges levied on newly built homes.
Homebuyers are well aware of land transfer taxes or fees. And most people know about sales taxes that often apply to newly constructed real estate. (The Carney government has proposed a new federal rebate for first-time buyers on homes worth up to $1.5 million.)
But few know about development charges, which make up the largest chunk of an assortment of fees that cities collect from builders to pay for the cost of the infrastructure needed to support new dwellings.
Ostensibly, they are a payment from developers to municipalities for the expense of anything from, say, expanding sewers to building new roads. In practice, builders routinely pass these costs onto homebuyers. This makes the charges a de facto tax on new residents, and one that has been growing at breakneck speed in recent years in many of the country’s priciest real estate markets.
In several cities in Ontario, where these levies are highest, development charge rates rose by more than 200 per cent between 2011 and 2023, according to an analysis conducted for the builders’ lobby group BILD. In Toronto, they rose by a staggering 592 per cent in that period.
Opinion: Carney government’s housing GST rebate doesn’t go far enough
In Canada’s largest city, a homebuyer can expect to pay more than $130,000 in charges for a single-family home and around $80,000 for a two-bedroom condo. Development fees are also high in British Columbia, often surpassing the six-figure mark in Vancouver.
And yet, there is nothing like an itemized receipt that will highlight the cost of these taxes for homebuyers. The same holds for renters, who also ultimately pay for these fees through their monthly cheques to the landlord.
This utter lack of transparency helps to explain why many cities have been able jack up development charges to exorbitant levels with virtually no public outrage. Similar hikes of any other tax would have likely triggered nothing short of a popular revolt.
Mounting land value and construction costs in high-growth cities are often behind some of the increase. But development charge rate increases have outstripped population growth, undermining the claim that escalating charges are simply the cost of new development.
The lack of transparency is convenient for city administrators, who often quietly label ambitious projects that also benefit established residents as expenses to be paid with development charges. Why risk an uproar from constituents by raising property taxes when one can simply finance that new community centre or sports hall with politically invisible development charges?
Toronto developer Brandon Donnelly has aptly called the levies a “transfer from the people who don’t want to pay for stuff to the people who don’t know they’re paying for stuff.”
This can’t continue. Cities should have an obligation to disclose the itemized cost of municipal fees to homebuyers.
An even bolder idea is to charge those taxes directly to buyers, treating them similarly to sales taxes, as suggested by economist Mike Moffatt. That change could save homebuyers tens of thousands of dollars, Mr. Moffatt reckons, in part by excluding municipal fees from the home purchase price used to calculate federal and provincial sales taxes.
Now, with the real estate market in the doldrums, various federal, provincial and city-level initiatives are afoot to defer or – the better choice, as this space has repeatedly argued – cut these levies.
But coming clean about the cost of new municipal infrastructure and who pays for it should be the obvious first step to kick off the debate about how much cities should charge in development fees.